According to the latest data from Rosstat, prices for A-95 gasoline at petrol stations had risen by 7.5% by September 8, while A-92 increased by 7.2%. At the same time, the consumer price index (CPI) grew by 4.03% by the same date, meaning the growth rate of gasoline prices outpaced consumer inflation.
The Russian Fuel Union (RTS), which unites 29 associations and companies created by participants in the oil product market from various Russian regions, sent a letter to Deputy Prime Minister Alexander Novak with a proposal to stop restraining retail gasoline prices based on consumer inflation. In the letter, which was quoted by TASS, the RTS points out that the current growth of retail motor fuel prices is targeted according to the inflation level characterized by the CPI calculated by Rosstat. The letter states that the structure of consumer expenditures accounted for in the CPI calculation includes about 800 items, the vast majority of which do not relate to factors that determine the cost of fuel, while industry costs are not taken into account. Therefore, the union proposes to limit price increases at petrol stations using a special composite index, which should include, in addition to the CPI, the most significant factors affecting fuel prices: tax and credit burdens, minimum wage (MROT), average salaries, transport tariffs, and utility tariffs, and the cost of equipment upgrades. The RTS notes that this year, these indicators have been growing at rates that outpace inflation: excise taxes on gasoline have increased by 13.5%, profit tax has risen by 5 percentage points to 25%, the MROT has increased by 16.6%, and the average salary nationwide has gone up by 15.1%, while railway tariffs have risen by 13.8% and utility tariffs by 13.1%; in addition, the cost of loans has also increased.
"Considering the aforementioned price-forming factors of the composite index, retail prices [for gasoline] would have increased by approximately 15% by the end of 2024," said the head of the RTS, Evgeny Arkusha, to Interfax. "According to Rosstat, retail prices rose by 11.1% in 2024 with a CPI of 9.52%. However, retail price increases were managed at the expense of losses in retail profitability, which negatively affects the economy of fuel stations in Russia, and these losses are growing every year."
Novak has instructed the Ministry of Economic Development, Ministry of Energy, Ministry of Finance, Federal Antimonopoly Service (FAS), and Rosstat to consider the RTS proposal and present the results of their review by September 25. The Ministry of Energy declined to comment on the RTS proposal, telling Forbes that the department is "working systematically to ensure stable supplies of motor fuel to consumers while restraining price growth," as well as "engaging in daily coordination with regions and taking all necessary measures to provide uninterrupted fuel supply to the economy and population." The Ministry of Economic Development has not responded to Forbes' request.
"A Force Majeure Situation"
While retail prices are not legislatively regulated, authorities are monitoring to ensure that the pace of price growth at petrol stations does not accelerate significantly. Sergey Tereshkin, CEO of the fuel marketplace Open Oil Market, reminds that a tacit rule has been in effect in the country for many years: the rate of retail price growth for gasoline and diesel should not exceed the overall consumer inflation rate. If this rule is violated, he says, regulators close exports. However, Tereshkin believes that this year the situation has worsened due to attacks on oil refineries, forcing plants to reduce fuel production. Currently, price increases are again outpacing inflation dynamics due to heightened risks of shortages, he notes. "Therefore, voices within the industry are being raised, calling (not without justification) for a new benchmark, as old measures cannot be used in a force majeure situation," says Tereshkin.
Sergey Mironov, the head of the faction of the Fair Russia-For Truth party in the State Duma, immediately reacted to the RTS proposal, calling it "the height of audacity." "Fuel business tycoons are suggesting to account not only for inflation but also for the tax and credit burden on the industry, wage increases, tariff hikes, the cost of modernization, equipment repairs, and even staffing issues. In short – any expenses. And they want to include all this in the end cost of fuel. This means dealing another blow to the welfare of citizens and further accelerating inflation in the country," said Mironov. He also expressed serious concerns that the government would "cave in to the 'poor' oilmen and allow them to raise prices."
The RTS proposal carries two negative consequences: first, gasoline prices will continue to rise, and second, such a decision, if adopted, will further exacerbate inflation, believes independent analyst Leonid Khazanov. In his opinion, as a result, many sectors of the Russian economy will suffer. "For instance, a powerful blow will be dealt to agriculture, which is highly sensitive to the dynamics of fuel product prices factored into the costs by agricultural holdings and farming enterprises alongside prices for pesticides and mineral fertilizers," says Khazanov. "Accordingly, the prospects for upcoming fieldwork and ultimately the harvest of key agricultural crops will be uncertain."
According to the expert, the increase in gasoline prices will be felt by passenger and cargo carriers, who will have to raise fares, thus prompting cargo senders to shift to railroad transport. Ordinary citizens will switch to electric trains, predicts Khazanov. In the long term, there may be a decline in passenger and cargo transport by road and even bankruptcy of certain logistics companies, he believes.
The RTS proposals are fair, argues the head of the Tekface project and expert at the Intersectoral Expert Analytical Center of the Union of Oil and Gas Producers of Russia, Irina Kezik. "Last year, an export ban was imposed; this year regulators have followed the same path, but issues of fuel supply have not been resolved, because the focus of problems has shifted to unplanned repairs of oil refineries," she explains.
Will the RTS initiative receive support? "The Ministry of Economic Development is unlikely to agree to this and will strive to maintain the current retail pricing rule – 'inflation minus,'" suggests Kezik. "One can only imagine how government planning will 'sail away' if, while forming prices, we will be considering not only inflation but other factors that can change from time to time. Retail market representatives only need to be patient. Even if some of them go bankrupt, another, more enterprising player will likely come in – perhaps this is the logic of regulators."
Bull Market
According to the regulations approved by a joint order from the FAS and the Ministry of Energy, at least 15% of gasoline sold in the overall market should be traded on the exchange (FAS is considering the possibility of raising this quota to 17%). In 2024, gasoline production in Russia amounted to 41.1 million tons, meaning at least 6.2 million tons should have been traded on the exchange; however, in 2024 the trading volume was significantly higher, at 10.9 million tons.
Unlike retail prices, gasoline quotes on the exchange are not regulated by anyone. As previously noted by Forbes, the price of gasoline on the St. Petersburg exchange sharply increased in August, despite the government's total export ban first in August, and then in September. A-95 gasoline rose by 46% from January to 80,816 rubles per ton, breaking the record of September 2023 at 76,876 rubles per ton. A-92 increased in price by 33%, just shy of the September 2023 record of 70,508 rubles per ton. According to data as of September 17, A-95 gasoline on the exchange has slightly decreased to 79,410 rubles per ton, while A-92 has risen to 73,208 rubles per ton, surpassing the September 2023 record.
The market balance has worsened due to the repercussions of attacks on refinery infrastructure and a reduction in gasoline production, notes stock market analyst Alina Poptsova from Alfa-Capital. Referring to estimates from the IEA, which she cites, the attacks on refineries in August, a month with seasonally high demand, resulted in a loss of 250,000 barrels per day from the market, or approximately 5% of total capacity of Russian refineries.
"However, the situation remains under control: refineries have lost part of their capacities but continue to produce fuel, and some of the deficit can be covered by reserves and more distant eastern facilities,” says Poptsova. "Nonetheless, the ban on gasoline exports has insufficient effect amidst stringent market regulation and structural problems, and thus a revision of the damping mechanism appears necessary."
Attacks on Russian refineries continue; the peak of demand for domestic travel has not passed, the harvest season is in full swing, and in addition, the long-anticipated amendment for August has not yet been adopted, comments independent analyst Maxim Shaposhnikov.
What is a damping mechanism and its amendments? The existing damping mechanism aims to ensure stability of domestic fuel prices. The damping is calculated based on the difference between the export price of gasoline and its indicative internal price, which is legally established. When exports become more profitable than supplies to the domestic market, the state compensates manufacturers for the difference. The Rotterdam price for gasoline is used as the export price, while a fixed threshold of 60,450 rubles per ton for A-92 gasoline serves as the internal price. The damping is nullified if, on average, over a month, wholesale gasoline prices exceed indicative prices by more than 10%, that is, they become higher than 66,495 rubles per ton. Since the average gasoline price in August was 69,340 rubles per ton, damping payments, under current rules, should be nullified, notes Shaposhnikov.
Earlier, it was reported that the government planned to raise the damping threshold on gasoline from 10% to 15%, and on diesel from 20% to 25%, so that oil producers could expect compensation payments at current prices. This decision has not yet been made. However, Deputy Minister of Finance Alexey Sazanov told journalists that the Ministry of Finance is prepared to ease the rules for compensatory payments to oil producers from the budget for restraining wholesale prices.
"In this context, oil producers are trying to push for an increase in retail prices to maintain the profitability of refining operations and to benefit from the market frenzy," says Shaposhnikov. "Adding fuel to the fire is still a very high Central Bank interest rate, which forces petrol stations to increase retail prices and pushes exchange demand."
Source: Forbes
